Riviera Finance

The art of factoring is simple. So years ago, factoring companies had to come up with some way to make it complicated and hard to understand. They did so through pricing.

Here are the basic variables of pricing, why factoring companies use them, and how they can impact you.

Factoring rate (discount rate): Expressed as a percentage, and applied to the face value of the invoice, this is the amount the factoring company charges each time an invoice is factored. If the rate is 3% and the invoice is $10,000, the factoring fee is $300. In a traditional “flat rate” transaction, this rate is fixed and it covers all the factoring company’s costs, including financing, staff, postage, supplies, accounting, administration, overhead, writeoffs, and profit.

If the extra income generated from the added cash flow is more than the 3% added cost, then factoring has value for you and you should consider it. Otherwise it may not be the best solution for your business.

Adjustments for “turn” and volume: Factoring companies may adjust the factoring rate up or down based on how quickly the invoices are paid, or “turn.” The rate might also be adjusted for the total dollar amount you factor, usually on a monthly basis. These adjustments should be clearly stated in the security agreement. In many cases, the adjustments can be significant, so the client should study the agreement and be diligent to take advantage of the adjustments whenever it makes sense to do so.

Effect of reserves: Many factoring transactions are done with reserves, meaning the factoring company holds back a percentage of the invoice until after it gets paid by the end customer. In general, the greater the reserve, the lower the factoring rate, since the factoring company is advancing fewer funds and is taking on a lower risk. If you are looking to reduce your factoring rate and can manage without maximizing cash flow, ask your factoring company for a higher reserve and a lower rate.

Effect of term agreements: Factoring agreements can vary from month-to-month to two years and more. As a rule, the longer the agreement, the lower the factoring rate. To experience factoring before committing for the long haul, request a short-term agreement, then lengthen it after you’re convinced that factoring works for you.

Added fees: This is where you must be extremely diligent to avoid turning a productive tool into an expensive burden. Factoring companies can be very creative in managing income by reducing the factoring rate while adding all sorts of other fees. Be careful to ask about them and scour the security agreement before signing. Here are some of the more common fees:

The worlds of business and finance are full of jargon. If you don’t have a business degree or many years of experience, you may be confused or intimidated by some of the terminology. This is especially true when it comes to areas, such as factoring and business financing.

Often, you’ll see terminology with slight variations and you may wonder if two terms are referring to the same thing or if there are differences.

Here’s a brief description of some finance jargon you’re likely to encounter:

Trade Finance – This is a broad term that refers to any type of financing for commercial transactions.

Factoring – This is the practice of a business selling its invoices or accounts receivable to another business, called a factor, at a discount. This allows the business to receive immediate cash.

Invoice Factoring – This is the most common type of factoring that is commonly discussed today and refers to the type of arrangement mentioned above.

Discount Factoring – Another term that is often used interchangeably with factoring and invoice factoring, but most often outside the United States. The factoring company “discounts” the face value of the invoice and retains the discount as its fee.

Accounts Receivable Financing – This is an umbrella term that includes factoring and accounts receivable lending. Whereas factoring is an outright purchase of receivables, accounts receivable lending involves a loan secured by receivables as collateral.

Working Capital Financing – Any type of financing that is used to provide ongoing working capital for a business.

Inventory Financing – A loan or line of credit made to a business so that it can buy essential products or inventory for eventual sale.

Revolving Line of Credit – A specific amount of credit that is available on demand to a borrower. Once the loan is repaid, the business can borrow again. The terms may change over time, but the basic arrangement remains steady.

Asset-Based Lending – Any type of business loan that’s secured by assets or collateral. Assets include inventory, accounts receivable or anything of value that the business owns.

Purchase Order Financing – Also called purchase order funding. This practice is usually confined to businesses that sell products rather than provide services. It allows such businesses to obtain financing for purchase orders that they couldn’t otherwise fund.

It can be confusing to understand finance jargon because many of these terms are quite similar. Furthermore, you’ll find that different financial institutions may use them in slightly different ways. It’s always important to make sure you understand the specific terms of any arrangements that you enter into.

Invoice factoring can be a beneficial practice to help businesses improve their cash flow. Riviera Finance is one of the most trusted companies in this field, with experience in business financing since 1969. If you think that your business might benefit from factoring, visit the Riviera Finance website or call for a quote at 800-872-7484.

Riviera Finance was given a Five Star rating on Merchant Maverick, an online review website of financial and other business services for small business owners. The review was published on April 7, 2017 by Bianca Crouse.

Merchant Maverick said in closing, “Riviera Finance is best for growing B2B and B2G businesses that need invoice factoring to solve cash flow problems, especially if your business is close to one of this company’s local offices.”

The highlights of the review included:

Invoice factoring

Non-recourse factoring

Startups okay

Poor credit okay

No startup fees

No monthly minimums

Friendly customer service

The review touches on a range of business areas of Riviera Finance, such as services offered, borrower qualifications, application process and customer service and technical support, among other areas.

We are pleased to be featured on a review site that provides ample facts and details for prospects to make informed decisions. And, although our product is essentially simple, our industry is complex with many details to be understood. We explain invoice factoring on our What Is Factoring page, but it’s nice to see a well-known comparison site break it down for our potential clients.

Amad Ebrahimi, who founded Merchant Maverick in 2009, said he started the company out of frustration with all of the misinformation and “shady tactics” that he saw online when trying to conduct business. Merchant Maverick spends dozens of hours researching and testing each company or product, so the user doesn’t have to.

National SBDC Day is March 22 and we are joining the celebration. Nearly 1,000 Small Business Development Centers across the United States will celebrate the small business community with events, public relations initiatives, and social media campaigns designed to highlight the importance of small business on economic development nationwide.

Local SBDC Offices Offer Free Training

According to the ASBDC: Small business owners and aspiring entrepreneurs can go to their local SBDCs for FREE face-to-face business consulting and at-cost training, on topics including:

Writing business plans

Accessing capital

Marketing

Regulatory compliance

Technology development

International trade

The U.S. Small Business Administration reports: Small Business Development Centers (SBDCs) provide a vast array of technical assistance to small businesses and aspiring entrepreneurs. By supporting business growth, sustainability and enhancing the creation of new businesses entities, SBDCs foster local and regional economic development through job creation and retention. As a result of the no cost, extensive, one-on-one, long-term professional business advising, low-cost training and other specialized services SBDC clients receive, the program remains one of the nation’s largest small business assistance programs in the federal government . The SBDCs are made up of a unique collaboration of SBA federal funds, state and local governments, and private sector resources.

SBDC assistance is available virtually anywhere with 63 Host networks branching out with more than 900 service delivery points throughout the U.S., the District of Columbia, Guam, Puerto Rico, American Samoa and the U.S. Virgin Islands.

Riviera Finance has sponsored numerous SBDC events and activities over the past 10 years. Our affiliation allows us to access critical resources for our small business clients to ensure their growth and success.